CompuGroup Medical SE & Co KgaA

XETRA:COP

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. I am Moritz your Chorus Call operator. Welcome, and thank you for joining today's CompuGroup Medical Investor and Analyst Call. [Operator Instructions] I would now like to turn the conference over to Corporate Vice President, Investor Relations, Claudia Thomé. Please go ahead.

[Claudia Thomé, executive]

Good morning, everyone, and welcome to the CompuGroup Medical Investor and Analyst Conference Call for the fourth quarter and the preliminary full year results 2022. It's great to have you with us, whether you have dialed in via phone or following the webcast.

You will find all the relevant information such as the presentation, the quarterly statement and the press release, which we published early this morning on our website. We're going to start with the presentation by the spokesman for the Managing Directors and CFO, Michael Rauch, followed by the Q&A session.

Before we start, as always, some housekeeping remarks. Let me remind you on our safe harbor statement, which is shown at the beginning of the slide presentation and is valid for the entire call.

Thank you very much for your patience. And now let's start. I hand over to Michael Rauch. Michael, over to you.

[Michael Rauch, executive]

Thank you, Claudia. Good morning, and a warm welcome to all of you. Before I start, let me please express our heartfelt compassion regarding the earthquake tragedy that occurred in Turkey and Syria.

As of now, we can confirm that all of our company employees in Turkey are safe and business operations are not affected. We keep our fingers crossed that the international support wave is going to bring relief to the people in need.

Now having said this, let's kick off the presentation, and we move into 2022. Looking back into 2022. For CompuGroup Medical, the year started already actually in December 2021 with a cyber attack. Publishing of the annual report on April 7, 2022, in time took a show of strength by the whole team. The Russian attack on Ukraine triggered not only human tragedies but also macroeconomic challenges, including supply chain issues.

We streamlined the Board of Managing Directors post the departure of Dirk Woessner, and we took an important milestone in our data business with the acquisition of INSIGHT Health, the largest acquisition for the year 2022. In the second half of the year, CompuGroup Medical switch gears towards margin expansion, which is a key focus for us for the current year 2023. And in December after 2 years of substantial personnel onboarding, we finished another important project successfully. With the go-live of the HR Workday tool, we are now in a better position to manage our most important resource more efficiently, our employees and the team of CompuGroup Medical who delivered along many dimensions last year.

We introduced a new level of customer centricity with our doctors first campaign and focused on R&D for our next-generation technology to support our existing customers and to win new customers, which we did. We strengthened our portfolio with several acquisitions besides INSIGHT Health, adding to our data business and the U.S. laboratory information systems. To foster our company culture, we define corporate values for the whole company and rolled them out to the whole team. With all these milestones achieved, we, the whole CompuGroup Medical team are ready to also deliver on our promise for further revenue growth and significant EBITDA expansion in 2023.

In 2022, we delivered another record year with revenues of EUR 1.13 billion and an adjusted EBITDA of EUR 234 million, we have set 2 new records in the history of CompuGroup Medical. This is a result of a double-digit revenue growth, supported by an organic growth rate of 4.1% and of 6.3% if you adjust for the Telematics Infrastructure connector software upgrade in 2021. Taking a long-term view, we've shown an excellent growth track record, too. A revenue CAGR, compounded annual growth rate of more than 15%, supported by many successful and strategy supportive M&A activities and almost doubling the number of our employees to now more than 9,000 employees represents a strong growth development. And it's not only an M&A growth story. By focusing on our core competencies, supporting health care practitioners and the digitalization in the health care sector, we took organic growth to a new level.

From 2015 to 2019, CompuGroup Medical grew between 0% and 3% organically, if you exclude the one-off spikes from Telematics infrastructure. We decided to build up resources for higher organic growth and managed to increase the level of our organic growth significantly. 2022 was the third consecutive year of an organic growth rate, well above the historical level despite the challenging overall condition over the past year as mentioned.

And we will continue to outperform, supporting our customers, focusing on helping them to grow with ever more digitized processes, tools, solutions, decision support analytics as well as embracing the future with a winning mindset.

We are the leading medical software company. This ambition is underlined by an excellent position of strength to realize growth opportunities with leading market positions in Europe and in the U.S.

We've added significant scope during the past years and have seen increasing market relevance of CompuGroup Medical. This position is based on and will be propelled through our 5 major growth drivers to benefit from digitization momentum and unleash the next stage towards our midterm ambitions.

Our investments are bearing fruits, especially in the AIS segment, where we enhanced our existing products and services with new modules and functions to push the digitization in the ambulatory sector on a new level.

In addition, we deliver on ongoing governmental initiatives. Following the successful integration of eMDs, CGM U.S. successfully built the basis for further growth in 2022. Going forward, we will focus on the rollout of eMEDIX and RCM solutions to push our margin development and use our high potential of cross-selling.

Our hospital business will be a major contributor on our growth paths, where we benefit from our new G3 platform and governmental programs such as Hospital Future Act. I will give you an update on the expected revenue related to these initiatives in a couple of minutes.

With the Telematics Infrastructure, we continue to upgrade the backbone connection of all German health care practitioners for the benefit of the patients. And we will drive further digitization, efficiency and security initiatives in the Pharmacy Information Systems segment for the benefit of our pharmacy customers and their patients.

In 2022, we were able to take a massive step forward in our innovative data business. Supported by our AIS and PCS segments, our already powerful data lake has been taken to a new level with the acquisition of INSIGHT Health. With all these growth drivers, we are well prepared for the future.

Looking back at the last year, where we delivered on our updated guidance. Let me just walk you through. Group revenues have grown by 10% year-on-year and by more than 4% organically. Adjusted for the connector software update PTV4 in 2021, we saw an organic growth of more than 6% and thus in line with our midterm targets.

I already mentioned our record adjusted EBITDA in line with the latest guidance. Our adjusted earnings per share came out with EUR 1.80, at the midpoint of our guidance range. After an accelerated catch-up in the fourth quarter, free cash flow came out at the upper end of the updated guidance, and I will go into more detail later.

Let's take a closer look at the segment performance against 2022 guidance. First of all, all of our operating segments posted revenues above last year's level and 2 of them exceeded our own expectations.

Our biggest segment, AIS, grew by 6% to EUR 502 million, which is slightly above the midpoint of our guided range. Excluding acquisitions and FX effects, organic growth stood at 1% against high comps in 2021, where we rolled out additional modules like the eHealth record, the KIM modules and vaccination certificates.

HIS, grew by 8% reported and 3% organically to EUR 277 million, which is slightly below our full year guidance. For this year, we are all set for strong organic growth in this segment, underlined by an excellent order intake last year.

Both CHS and PCS segments exceeded the guidance range with an attractive growth rate, also organically. Let me now go into more detail regarding the segments, and I will start with our flagship, the AIS segment, which is driving the digitization in doctors' practices across Europe and in the U.S.

In 2022, we strengthened the basis for further growth. With the reorganization doctors first, we focused on entire AIS DACH organization on customer centricity. This allows us to support our existing and future customers to benefit from tailored offerings and enables us to more consequently pursue market trends like larger practices, where we are already winning large tender projects over the last year.

And on the margin side, we took a first step for the expected expansion. With the rollout of eMEDIX started in the second half of 2022 and the planned replacement of a third-party provider in the U.S., we will unleash even more efficiency in the future.

To summarize the development in the AIS segment, an excellent development, both from a market and from a result view gives us confidence for future growth and margin rebound.

After having shown a 27% CAGR since 2019, our hospital business is well prepared for further growth. The Hospital Future Act, the large governmental initiatives in Germany to drive digitalization modernization in hospitals, is keeping our HIS colleagues busy and excited.

At the beginning of last year, we informed you that we received confirmed orders relating to the Hospital Future Act of more than EUR 25 million. At the end of last year, we reached around EUR 90 million order intake.

Based on the latest projections, we now raised, I say again, we now raised our expected revenue target from a total of EUR 50 million to EUR 80 million to now EUR 90 million to EUR 110 million over the next couple of years from this initiative, a clear proof point of the high market relevance of our CompuGroup Medical clinical product.

And the future is not only dependent on one governmental initiative. We've seen a powerful business outside of Germany, particularly in Spain and Poland, and a growing order intake in the countries we operate in.

We've invested significantly in the hospital business over the past couple of years, no different in 2022 with a spike in the fourth quarter deliberately investing in the success of larger client projects and with revenues postponed from Q4 2022 into 2023 with a dissatisfying EBITDA margin.

Going forward, we are well prepared to turn the remarkable order intake into revenue growth acceleration, and thus expect an overproportionate EBITDA contribution already in 2023.

In our Consumer Health Management Information Systems segment, we delivered a double-digit revenue CAGR over the past couple of years with an attractive adjusted EBITDA, recently impacted by our investments to build the foundation for sustainable growth in the future.

We achieved major milestones on our path towards the goal of becoming a leading European provider of data solutions. We entered a new market with the acquisition of a 20% stake of the Italian company, New Line. This is a starting point for an internationalization of our data business, and we are really excited about the steps we took in building up new opportunities. And there's a clear market demand for our solutions from health care providers, pharmaceutical companies, insurances and other health care constituents.

Also, the second important pillar within our CHS segment, the Telematics Infrastructure business, delivered. Despite the delayed connector software upgrade now expected within the first half of this year, the TI business showed a strong performance in 2022.

The Connector Hardware Exchange achieved the expected ramp-up in Q4, and we're confident to exchange the planned roughly 30,000 connectors until spring this year. Our PCS segment has recorded an excellent performance exceeding our guidance range for 2022.

Even against a very strong prior year of 2021, revenues went up again with our colleagues from Italy delivering a substantial revenue growth on top of an already high 2022, and the margin has seen step-up due to efficient cost management in both countries, Germany and Italy.

Not only the segments are well prepared for 2023 delivery, but also the cost development is on the right track. With our initiative -- sorry, with our investment initiatives started in December 2020, we ramped up personnel expenses massively.

Organic growth of personnel expenses, meaning adjusted for acquisitions and FX effects, has been high in 2021. It lessened in the first half of 2022, and it has been brought down significantly in Q3 and Q4 of 2022.

Having invested for future sustainable growth in the past 2 years, we will noticeably drive profitability from this year onwards. The free cash flow development during 2022 has been influenced by phasing of cash contributions from growth projects like TI, Hospital Future Act and Ségur in France.

In addition, free cash flow was impacted by payments resulting from management changes and restructuring. This led to an adjustment of our guidance after the third quarter 2022.

During Q4 2022, the free cash flow showed the anticipated ramp-up and ended the year at EUR 69 million at the upper end of the adjusted guidance of EUR 40 million to EUR 70 million.

We are confident to bring free cash flow back to the 3-digit million amount until the end of 2023. Net debt at the end of 2022 was around EUR 60 million higher compared to end of 2021, leading to a leverage of 3.1x EBITDA.

Please let me highlight that more than 80% of net debt is protected against interest rate hikes through caps and swaps. So CompuGroup Medical is crisis-resilient financed at attractive conditions and our financial firepower remains strong.

Besides the EUR 400 million term loan and the EUR 600 million revolving credit facility, we also have access to the EUR 200 million credit line of the European Investment Bank.

With this, let me conclude the review of 2022. And now let's look to 2023. This year, it's time to deliver. 2023 is the year of overproportionate bottom line growth. We will, of course, continue to grow our top line and we certainly want to deliver overproportionate growth in EBITDA.

Based on the feedback from investors and analysts, we've simplified our company guidance. For 2023, we expect an organic growth rate of around 5% on group revenues, in line with our midterm targets.

The adjusted EBITDA is expected to deliver a significant step-up to a range of EUR 260 million to EUR 300 million. For the adjusted earnings per share, we forecast an increase by 10%.

The share of recurring revenues is anticipated between 60% and 70% compared to total revenues, and the free cash flow is expected to ramp up to more than EUR 100 million.

Coming to segments. On a segment basis, we expect the Ambulatory segment to grow organically in the mid-single digit percentage area, the Hospital segment in the mid- to high-single digit percentage area and the CHS is expected to show an organic growth rate of low- to mid-single digit.

The Pharmacy segment is supposed to grow organically in the low-single digit percentage area in 2023. These targets are another major step on our path towards our midterm targets. We already brought our organic growth to a new level. And we want to achieve a compound annual growth rate of around 5% until the year 2025.

At the same time, we increased the quality of our revenues, taking the share of recurring revenues to more than 70%. And we are going to deliver in 2023 strong margin progress towards our target of 27% in 2025.

We have a strong customer base, a fantastic product portfolio, an excellent market position and great growth opportunities, which we will tackle with our strong team. We are ready for an exciting year 2023, in which we are fulfilling our mission every day. We are creating the future of eHEALTH.

With that, I want to thank you for your interest and look forward to your questions. Operator, please open the Q&A session.

[Operator]

[Operator Instructions] And the first question comes from Laura Metayer from Morgan Stanley.

[Laura Metayer, analyst]

I have 2 questions today, please. The first one is on the EBITDA guidance. So if I apply a 6% stated growth to your 2022 revenues, the EBITDA guidance implies a 21.7% to 25% margin range.

Just wanted to check if that is the correct approach when thinking about your margin ambitions for 2023? And I also understand the biggest parts -- moving parts is the staff cost. Could you please comment on what you expect there?

And the second question is, could you please give us a bit more color on the CHS 2023 guidance? What is your expectation on TI versus the data business? You -- the data business has been impacted by the macro. So just wanted to check what you think the trajectory will be for 2023?

[Michael Rauch, executive]

So thank you, Laura. Let me start with the first question regarding the EBITDA. You mentioned a stated growth rate of about 6%. So we guide organic growth rate based on the feedback we've received because very difficult to forecast in these days what the exchange rate is going to do.

If we take the spillover impact from the large acquisition, INSIGHT Health, which has an impact here, into account 4 months are still inorganic, then probably 6% is a good way to calculate that, just to confirm.

Now in terms of what is moving that range from EUR 260 million to EUR 300 million? You mentioned staff cost on the input cost side, that could be one. But for us, the question is when do we realize projects? So I want to give you concrete examples.

So as you know, we are pursuing many governmental initiatives, one, for instance, the Hospital Future Act. So the realization of the revenue is for us an unknown. The cost base is there. The same, for instance, with the Ségur de la santé project in France, where we are forecasting it to happen in 2023 or in early 2024.

Those are all unknowns. And that's why learning from the year 2022, where we had a very narrow range of EBITDA of only EUR 20 million and now having grown in size again to be now a company with more than EUR 1.1 billion in sales, we figure it is smart to say, okay, the lower part of the range is EUR 260 million, which is substantially above what we achieved in 2022 and the upper part of the range is EUR 300 million, which would be bang on, on the 25%, as you mentioned.

The second question was regarding the split in CHS segment on growth guidance for TI and for data business. TI is very difficult for us to forecast. We said earlier that we are going to deliver an exchange of around 30,000 connectors by the end of spring this year, then there is a question of what will happen regarding next software upgrades on the TI side, which for us is very difficult to forecast.

So that's why our guidance range on the CHS side will be more concrete as we move along the year. On data, our ambition is, as you know, on a long-term basis, to grow around 8% to 12%, and that's what we're still sticking with.

[Operator]

And the next question comes from Knut Woller from Baader Bank.

[Knut Woller, analyst]

Yes. Michael, just a quick question on the connector replacement cycle. Can you share with us, I mean, you gave the indication of the 30,000 replacements by spring. Can you share with us what the backlog is that you still have to work up in H1?

And then also, I know you're just providing guidance for the full year, but just from a directional perspective, looking at the comps in H1, margin-wise, they have been relatively low. So keeping in mind that you still should have some tailwind from the connector replacement, also the software update expected in H1, is it then fair to assume that we should see better margins already noticeably better margins in H1 and also noticeably improving operating cash flow in H1 year-over-year? Is that a fair way to look at the seasonality of 2023?

[Michael Rauch, executive]

Thank you, Knut. And I want to start with your second question, and I want to be very affirmative. So the way you phrase that I can confirm that's also our assumption. We want to see a margin step up, a significant one already in the first half of 2023. And we also are going to see a rebound in the operating and free cash flow.

On your first question regarding the Telematics infrastructure. Yes, so 30,000 is what we want to have exchange by end of spring. As you know, those are -- the majority of the connectors that had been delivered first time in 2017 and 2018 and then we had basically a spread over the years until 2020 when the last connectors were delivered for the pharmacies.

So the timing of the connector exchange is something which for us is going along. If we can convince our customers to go in an earlier exchange mode, we might see throughout the year of 2023, more connector exchanges to come, and we will update you as we go along every quarter.

[Knut Woller, analyst]

And just a quick follow-up on looking at the 30,000 target, I understand the uncertainty whether customers might go for the software update, whether it's the physical replacement and the timing of the later ones.

But just looking at the 30,000 to be replaced until spring, what still of this quantity has to be replaced, which -- where we know that it has to be a physical replacement? So what is the backlog that you we will have for...

[Michael Rauch, executive]

Yes, yes, sorry. I should have -- sorry for jumping in. I should have been more precise. I can give you already a number. We exchanged in 2022 -- around 20,000 by end of 2022. So basically, around 10,000 would need to be exchanged until spring.

[Operator]

And the next question comes from Andreas Wolf from Warburg Research.

[Andreas Wolf, analyst]

I have the following questions: so the first one is relating to the SAP partnership. Could you shed some light on the opportunity that lies ahead of you? There are market estimates saying that SAP generated roughly EUR 80 million of revenues in the hospital software business, and there are also significantly higher estimates, could you share your thoughts on the business opportunity here?

Second question is also related to HIS. Could you also elaborate on the phasing of the roughly EUR 100 million that you're expecting here, I would expect it is likely to lean towards 2024, maybe even the end of '24?

And then there were media reports on the connector. Obviously, there is a software-based update plan for '25 or the next -- the third generation, I should say, is supposed to be software-based. Could you also elaborate on the positioning of CompuGroup for a software-based connector, i.e., would you see yourself basically in the same position as for the second-generation connector?

Or would there be another tender which might change market structures? And could you maybe also share your thoughts regarding the price of such a software-based connector, that would be helpful?

[Michael Rauch, executive]

Thank you, Andreas. Lots of heavyweight questions. So let's start with the 2 hospital questions. The first one was addressing the partnership which we announced with SAP. I cannot go into any details here, as you will understand.

However, I want to gauge a little bit expectations here. What we clearly see on the hospital side as we see a trend for further consolidation, and we see the need for significant digitization in the hospital space. And I think we are uniquely positioned, let me repeat that, uniquely positioned by having invested as -- so far as we know, the only one in a complete suite of new third-generation technology with our clinical software.

And that allows us over time to win project after project. And that probably also want to go into -- and going after the former SAP customer base.

The second question was also addressed on the hospital side because you asked, okay, the Hospital Future Act, how should we think about that in terms of timing? And I think I briefly alluded to that when saying and answering the first question of Laura regarding what drives the EUR 260 million to EUR 300 million EBITDA?

It comes a lot from when can we recognize the revenue here with the Hospital Future Act projects? And I wouldn't go so far, as you said, to say that the majority of the revenues only start in 2024. But of course, who are we basically to judge on how quickly our clients are prepared to go into that.

We are standing here and are operating and are ready to implement as many projects as our clients would like to do with us.

The last question was one on the Telematics Infrastructure. And for everybody, you know that probably this is the last time that we see a hardware connector exchange, the gematik, the German Society for governing the Telematics Infrastructure, has announced that they want to go into a software connector mode.

And there are all parties basically developing high-speed connectors, are thinking about Telematics Infrastructure offering as a service. And the new name of the game is the TI 2.0 Software Connector Structure, the specifications have not been fully defined yet.

The discussion is ongoing. And your question was how is the reimbursement going to effect from a revenue and from a revenue and from an EBITDA perspective for us? That's still speculation because the gematik society proclaimed that they're going to decide on how people are reimbursed probably in summer 2023.

So as of right now, we don't have any an indication of how this is going to go out. But one thing is for sure, wherever there's an opportunity with the governmental initiative in the eHealth space, CompuGroup is here to help and to benefit from that.

[Andreas Wolf, analyst]

And do you have any information regarding potential impact on market structure, i.e., would there be further tenders or would basically any provider be able to provide their respective products with the hardware for that?

[Michael Rauch, executive]

We cannot comment on any further insights here. So potentially, the body to address would be gematik here , Andreas.

[Operator]

And the next question comes from Florian Treisch from Kepler Cheuvreux.

[Florian Treisch, analyst]

Yes. I think you missed to mention the major driver for '23, in my view, which is announced price increases. So you have been verbally more aggressive on it, and you have not yet mentioned it in the presentation.

So maybe can you again quantify the revenue impact for '23? And to build up on that, if my calculation is right, 3%, 4% organic growth from pricing, plus around 2% growth from the TI software update as you are now expecting in H1 '23, I think we are pretty much at above 5% organic for the full fiscal year, all before HIS growth and all the other factors.

So are you just conservative here? Or do you really are afraid of large impact from revenue recognition of larger projects, as we have hinted in the presentation? And the second part would be, can you deep dive a bit into the HIS segment? You've -- there's only been EBITDA breakeven in Q4, which is completely out of the normal kind of seasonality.

Can you quantify the impact here? And can you also say what do you expect for '23, i.e., a clearly weaker margin than you used to be because of investments or do you expect a fast recovery in margin?

[Michael Rauch, executive]

Okay. Florian, I want to start with the first one. So indeed, we should have banged the drum stronger that we, of course, did substantial price increases. That's a fair point from you. We take it almost as natural because we have implemented the price increases and the price increases will indeed help us to also underline that we are very confident to achieve 5% organic sales growth as we have guided here.

Now in terms of the makeup volume growth and price increases, we didn't disclose that, but the majority of the price increases, as you know, come on to our recurring revenues, particularly here in the AIS and PCS segment, and there have been also some comments out there, and we also did comment on that when we released our third quarter financials regarding what we had intended here as price increases to implement.

And as January is now coming into the books, we are very positive on what we see of price increase implementations here. So yes, that is, for us, a positive. And we, of course, need also the price increases to cover inflationary impacts, as we have always commented on.

The second question you asked was regarding the Telematics Infrastructure connected with the organic sales growth that you said, okay, don't you have headwinds here -- sorry, tailwind in a sense of the connector upgrade?

Yes, the connector upgrade is in, but the connector upgrade, as I just said, if we had 20,000 in 2022 and 10,000 in 2023, it will rather be a headwind then tailwind. And for the software upgrade, you're right, the software upgrade will then be there to compensate what we basically kind of see on the connector exchange.

So by and large, that should be a wash, but not an extra support here on the organic growth rate. Then your question was, in general, okay, what are we going to see throughout the year 2023? And I think I confirmed when Knut was asking that we are going to expect a stronger operating cash flow performance and a good margin development versus last year in the first half, and that's clearly what I still would confirm.

[Operator]

And the next question comes from Martin Jungfleisch from BNP Paribas Exane.

[Martin Jungfleisch, analyst]

Three questions, please. First one is on the U.S. If you can provide some color on the performance in the U.S. in the fourth quarter and what your expectations are for this year? And of course, on the margin side, when you would expect the benefits from the in-sourcing of the RCM solution to kick in?

And the second question is on the employee side and sort of the number of employees were down in the fourth quarter by around 100 people. Were there any layoffs in some units? And the other question is on the free cash flow guidance. What is your expected CapEx and capitalized R&D this year so that there was no guidance on this?

Would you expect to capitalize R&D down or is this another year of investments? And then, of course, what your expected impact is from the interest rate hike post the hedges?

[Michael Rauch, executive]

All right. Thank you for the questions. Martin, I'll start with the U.S. business. I think I was the one commenting early on when I started here at CompuGroup Medical in August 2019 that we have been looking into the performance from a profitability standpoint of our U.S. business and particularly with the integration of eMDs and our strong development in the U.S. lab business, we managed to bring up profitability from kind of like a 0 percentage level to the high mid-teens level.

So we see that as a very positive development, and we want to see another profitability jump also in 2023, which is supporting our overall margin expectation. The second question was regarding the situation for the headcount.

It is indeed true that in absolute, our headcount went down. This has nothing to do with layoffs. We have just a normal fluctuation. And what we count as headcount also is the trainees, the interns. And here, we see movements as well as also we see it in the low labor countries, for instance, in India.

Let me remind everybody, we have a workforce of more than 1,000 people working for us in India, and those are seasonal fluctuations. So nothing to worry about. On the contrary, it moves in the right direction. And in essence, as there is more talk about artificial intelligence automization, we also see opportunities for us to keeping our workforce stable despite growing our revenue line significantly.

Last point was on the CapEx side. Your overall CapEx, including the capitalization of own software development, we expect to be -- if nothing unusual happens on the same level. With regard to the capitalization for R&D projects, I can confirm and be very certain about that, that we don't see any spike up versus the 2022 level.

[Martin Jungfleisch, analyst]

And on the interest impact post the hedges...

[Michael Rauch, executive]

Very good point. Very good point. I don't want to shy away from that one, I forgot. On the interest one, thanks for reminding me. We said that about 80% is covered by caps and by swaps. And so that means the current level, which we see right now in terms of the hikes for the European Central Bank and also for the U.S. is already above that what we have covered and anchored ourselves in. So you would see in the other income -- comprehensive income, a positive effect.

[Operator]

And the next question comes from Thomas Angermann from UBS Asset Management.

[Thomas Angermann, analyst]

Just one question to hospital. Can you give an overview about the segmentation in terms of size of your client base in hospitals and the background is this proposal of this new reimbursement policy by the Minister of Health, which seems especially the smaller hospitals might get into major problems?

And could that impact your growth there? Or is there a risk that maybe you get delayed payments or they do not adopt new software or whatever or maybe you have no big exposure to the smaller houses?

[Michael Rauch, executive]

So thank you, Thomas, for the question. And indeed, the Capital Markets Day is always a moment in time when we give a little bit of color. And at the last Capital Markets Day, my colleague, Hannes Reichl, he explained that we are well exposed to larger hospitals.

And our large projects, which we have been pursuing very successfully, particularly on university clinics, but we also have midsized hospitals and some smaller hospitals, but it is not for us a worry point.

[Thomas Angermann, analyst]

All right. Why it's not a worry point? Or do you think...

[Michael Rauch, executive]

No. Because you asked for the split of the exposure and our exposure is not so much tailored towards the smaller hospitals, that was your driving question, right?

[Thomas Angermann, analyst]

Yes. But it seems also some of the more medium-sized could get problems. It depends a bit, but have you done the analysis? Or do you get already feedback from your sales guys? Or how -- at the end, it might not only be a question of size, but of course, the smaller ones are more exposed, but it could be also some of the medium ones.

[Michael Rauch, executive]

Rest assured that we are, with our third-generation clinical software, well positioned and are in close contact with our clients and see that market very positive.

[Operator]

And we have one more question from Wolfgang Specht from Berenberg.

[Wolfgang Specht, analyst]

Yes. One clarification on R&D expenses. I understood you like to -- rather do not expect it to rise as a percentage of revenues, but the overall figure could still increase after the step-ups we've seen in 2021 and '22?

And the second one on exceptional for restructuring that has not been a figure in the last year, but in 2022, so just to get a better understanding of the bridge from adjusted to reported EBITDA, do you also expect restructuring expenses to play an important role in '23?

And then could you give us an insight where, let's say, giving money for Mr. Dirk Woessner, is it restructuring expenses or on other nonoperators?

[Michael Rauch, executive]

Wolfgang, many thanks. Let me start with the first question on the R&D side. So we didn't give a specific guidance regarding cash R&D expenditure. So the one question that was addressed here on the call was how much do we capitalize on self-developed software. And yes, I expect that CapEx portion to be not higher than what we saw in 2022.

Overall, we want to bring our R&D expenses into a good balance so that we can really improve our margins. But let me also make one point very clear, I said we create the future of eHealth, which means we are the leading medical software company, and we will always take the liberty to decide if we find successful projects, which are going to help us in the long term to invest in those projects.

Let me, however, also put a notion of caution in. We confirm EUR 260 million to EUR 300 million EBITDA at the same time. I think that gives you a way to gauge on how we think about on our R&D expenditures and the projects we go for. The other questions were more detailed regarding the adjustments. And you asked specifically regarding the line restructuring, what was put into restructuring. That was the cost, which we mentioned in the August call for the second quarter, where we had put our doctors first restructuring into that line, and we don't foresee any further restructuring activity to continue.

And then you ask for the question, what is in the line other adjustments. Yes, there are the cash expenditures in, not the options for the cash expenditures in for the departure of Dirk Woessner and for the first quarter of 2022 and for the fourth quarter of 2021, the IT incident related costs.

[Claudia Thomé, executive]

Okay, everyone. And since we do not have any further questions, we thank you for dialing in today. As always, Investor Relations is available, so please don't hesitate to contact Frederic or myself via phone or e-mail, if you have further questions. And with that, thanks again for attending, and we wish you a great day. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.